Question
Renoir Hotel & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Renoir's
Renoir Hotel & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Renoir's new controller, you are asked to recommend the basis to be used for allocating fixed overhead costs to the three divisions in 2012. You are presented with the following income statement information for 2011:
(Click the icon to view the information.)
You are also given the following data on the three divisions. (Click the icon to view the data.)
You are told that you may choose to allocate indirect costs based on one of the following: direct costs, floor space, or the number of employees. Total fixed overhead costs for 2011 was $14,630,000.
Read the requirements.
Requirement 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. answers to two decimal places, X.XX.)
Hotel Restaurant Casino
Requirement 2. Allocate indirect costs to the three divisions using each of the three allocation bases su each allocation base, calculate division operating margins after allocations in dollars and as a percentage
Allocate the indirect costs, then calculate the division operating margin in dollars and as a percentage of each segment.
Begin with cost allocation based on direct costs. (Round percentages, including intermediate calculation:: places, X.XX%. Round dollar amounts to the nearest dollar. Use parentheses or a minus sign for negativ
Allocated fixed overhead costs Operating margin
Hotel Restaurant Casino
Operating margin %
. ,
% % %
Next, allocate costs based on floor space. (Round percentages, including intermediate calculations, to Tu\ places, X.XX%. Round dollar amounts to the nearest dollar. Use parentheses or a minus sign for negativ
Hotel Restaurant Casino
Now allocate costs based on number of employees. (Round percentages, including intermediate calculat decimal places, X.XX%. Round dollar amounts to the nearest dollar. Use parentheses or a minus sign fo1 amounts.)
Allocated fixed overhead costs
Hotel Restaurant Casino
Requirement 3. Discuss the results. How would you decide to allocate indirect costs to the divisions? W
|
There is
in the operating margin percentages depending upon which allocation b
Where cost allocation is required, the
and
criteria are recommenc
$14,630,000 is a
|
overhead cost. This means that on a short-run basis, the
appropriate but Renoir could attempt to identify the cost drivers for these costs in the lng run. Renoir sh
the $14,630,000 cost
the three divisions. This will help guide the choice of an allocatio
short run.
Requirement 4. Would you recommend closing any of the three divisions (and possibly reallocating resc divisions) as a result of your analysis? If so, which division would you close and why?
The analysis in requirement 2
|
guide the decision on whether to shut down any of the divisior
overhead costs are fixed costs in the short run. It
variable
how these costs would be affected it
Renoir shut down one of the divisions.Also, each divisi -dependent of the other two. A decisic
is not
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the restaurant, for example,
the attendance at the casino and the
Data Table
(cont.) Hotel Restaurant Casino
Revenues $ 17,130,000 $ 6,427,000 $ 12,380,000
Direct costs 9,825,000 4,392, 100 4,475,500 Segment margin $ 7,305,000 $ 2,034,900 $ 7,904,500
Data Table
Hotel Restaurant Casino
Floor space (square feet) 70,000 14,000 56,000
Number of employees 280 70 350
Requirements
Requirements
Calculate division margins in percentage terms prior to allocating fixed overhead costs.
Allocate indirect costs to the three divisions using each of the three allocation bases suggested. For each allocation base, calculate division operating margins after allocations in dollars and as a percentage of revenues.
3. Discuss the results. How would you decide to allocate indirect costs to the divisions? Why?
4. Would you recommend closing any of the three divisions (and possibly reallocating resources to other divisions) as a result of your analysis? If so, which division would you close and why?
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